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Can Xcite Energy Get Bentley Motoring?

Xcite Energy is getting down to the tricky business of bringing its key asset into production.

LONDON -- Xcite Energy(LSE: XEL.L) provides a good illustration of the stock market adage, "Buy the rumor and sell the fact." As interest mounted in its Bentley prospect in the North Sea during 2010 and 2011, its shares soared to 4 pounds. Now that it's down to the dirty business of raising cash for development and conducting things like flow tests, the shares are back down at 75 pence, where the company is valued at just more than 200 million pounds.

Bentley is a heavy oil prospect, located 160 km east of the Shetland Isles in just over 100 meters of water. Earlier this year, proven plus probable reserves for the core area of the field were put at 116 million barrels.

Today's six-month results from Xcite didn't provide investors with much in the way of new information, but they provided a useful summary of the current state of affairs. The headline loss of 200,000 pounds is almost meaningless at this stage, as the vast majority of expenditure is capitalized as an asset on the company's balance sheet, to be expensed at a later date. To date, 155 million pounds of costs have been capitalized.

Total cash resources are currently 82 million pounds, but most of this is held in escrow accounts, earmarked for the development plans. Further funds of 8.3 million pounds have been raised since the period's end, and Xcite has also arranged a five-year $155 million facility with a group of lenders including Royal Bank of Scotland.

While that might sound like plenty of cash, it's estimated that a total of $360 million will required for development costs in 2013. Unlike most other oil developers, Xcite owns 100% of this prospect and so is shouldering the entire financial burden.

While the financials are of course important, investor interest is mostly focused on the current flow test. It started on July 9 and could take up to 90 days. Over this period, Xcite is planning to collect a minimum of 45,000 barrels. The most recent update was on July 19, when the company said the test was progressing well, with 10,000 barrels collected to date, and it had achieved a stabilized rate of 2,900 barrels a day. Once the test is complete, Xcite should be able to provide more detail on the next stage of its development plans.

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